Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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When the FDA approves a drug and
it's announced to the public, price can breakout in any direction, but the
probabilities say that price will trend down
soon after. This event pattern isn't worth trading because it has such poor performance.
Discovered by Thomas Bulkowski in the summer of 2003.

FDA Drug Approval Trading Tips

Although I don't recommend
trading this event pattern, there is an inverted J-shaped pattern (inverted and descending scallop) that shows
promise. The following (except the measure rule
which refers to all upward breakouts) pertains to that situation. A study of the
pattern reveals that price declines an average
of 29% in 86 days after an upward breakout.

Trading Tactic

Explanation

Measure rule

Compute the height (intraday high minus the low) on the announcement day and multiply it by the above
"percentage meeting price target." Add the result to the intraday high to get a price target.

Inverted J-shape

For upward breakouts, look for a price pattern that is an inverted J-shape. Price moves up following a trend, rounds
over, and heads back down. The figure to the right shows what this pattern looks like.

Price rise

After the breakout, price rises between 3 and 6 weeks before beginning to slide. Ignore patterns outside that time limit.

Trendline

Price follows a trend moving higher. A trendline drawn along the bottom of that price trend, when pierced by
moving lower, is the sell or sell short signal. The ideal figure near the top of this page shows an example.

FDA Drug Approval Example

The above figure shows an example of what happens sometimes when the FDA approves a drug. News reports indicated
that the company and its partner received approval to sell Abilify in the U.S. Price gapped up on the news and a nice
rise followed. However, within a few weeks, the stock was moving down again, bottoming in March.